Financial reporting and audit: What you need to know in July

Watch this month's technical update video from James Barbour, ICAS Director of Technical Policy, covering key issues in the areas of financial reporting, audit and company law.

This month's update video includes information on:

UK Financial Reporting

New UK GAAP – FRC Consultations

A series of financial reporting exposure drafts have been issued by the Financial Reporting Council (FRC). These largely focussed on accounting for smaller entities, including micro entities.

The FRC proposals expected to be substantively introduced. Finalised standards are expected later this month (July 2015).

Quality of Reporting by Smaller Listed and AIM Quoted Companies

FRC Observations

Investors believe quality of reporting by such entities is generally timely and of a good standard, but with room for improvement in a number of key areas.

Although the system of reporting is not fundamentally flawed, there is a higher incidence of poorer quality annual reports by smaller quoted companies than by their larger counterparts.

Improvements in quality of reporting would provide better and more relevant information to investors and potentially open up greater access to capital for some companies. An investor is more likely to invest if:

Annual report conveys a clear message of business model of company and its position and prospects

The annual report is prepared in accordance with clear and appropriate accounting policies and gives insight into these and other judgements, estimates and provisions.

The FRC also believes there is an opportunity for auditors. The deadline for responses is 31 July 2015.

IFRS for SMEs

In late May, IASB issued limited amendments to the IFRS for SMEs following a comprehensive review. The most significant changes, which relate to transactions commonly encountered by SMEs, are:

Allowing the revaluation of property, plant and equipment

Aligning the main recognition and measurement requirements for deferred income tax with IFRS.

The majority of other amendments clarify existing requirements or add supporting guidance, rather than change the underlying requirements in the IFRS for SMEs.

Entities are required to apply the amendments for annual periods beginning on or after 1 January 2017.

Earlier application is permitted provided all amendments are applied at the same time.

The IFRS Foundation plans to issue a complete revised 2015 edition of the IFRS for SMEs (a version with all the amendments incorporated that has also been subject to a full editorial review) in the third quarter of 2015.

In June, IASB completed its Post-implementation Review of IFRS 3 Business Combinations. General support for the accounting requirements in the Standard. However, some areas identified some areas where further research will be undertaken, including accounting for goodwill.

EFRAG has issued its draft endorsement advice on IFRS 9 Financial Instruments, advising that the IASB should put in place a deferral for insurers (final version expected in September). IASB has re-opened its January decision not to provide any transitional relief for insurers.

EU Audit Legislation

BIS and FRC consultations closed in March. At this time neither BIS nor the FRC has published any feedback statements on the responses received. Further consultations will be held later in the year.

If you have any questions regarding the content of the video, feedback or suggestions for future topics/subject matter, please contact James Barbour.